- Lending conditions continue to remain tight for commercial real estate investments. This is especially pertinent for small businesses and investors looking for properties in secondary and tertiary markets.
- In the wake of the post 2008-09 recession shakeout, large banks have been reluctant to underwrite commercial real estate investments.
- According to the 2012 Commercial Lending Survey, large national banks accounted for only 21 percent of commercial deals.
- In contrast, local banks provided the bulk of financing capital for commercial deals, with 64 percent of closed sales.
- Private investors and regional banks were the other major sources of funding, with 45 percent and 44 percent of sales, respectively.
- The Small Business Administration provided funding for 29 percent of closed transactions.
According to information in the latest Realtors® Confidence Index, a total of 32 percent of residential home purchasers were reported as making an initial down payment of 20 percent or more in February 2012 among those obtaining a mortgage. Approximately 64 percent of purchasers obtaining mortgages were reported as making down payments less than 11 percent.
- While 95 percent of buyers in 2010 chose fixed rate mortgages, only 92 percent chose fixed-rate financing in 2011.
- Of those with an adjustable product, a fixed- then adjustable product was about twice as common.
- Repeat buyers were somewhat more likely to choose adjustable rate financing than first-time buyers.
- For more information: http://www.realtor.org/topics/homebuyers_sellers_profile
- According to the latest edition of the Realtors® Confidence Index, in October 34 percent of home buyers had a down payment greater than 20 percent, 29 percent paid cash, and 34 percent were first-time buyers.
- Normally one would expect to see first-time buyers at 40 percent of the market, but investors and cash buyers apparently are absorbing part of the first-time buyer market.
- Many market observers have also mentioned tight credit as having a negative impact on first-time buyers.
The 2011 National Association of Realtors® Profile of Home Buyers and Sellers was released on Friday, November 11 at the 2011 Realtors® Conference & Expo in Anaheim, CA. The 2011 edition is the latest in a long-running series of large national NAR surveys evaluating demographics, preferences, marketing and experiences of recent home buyers and sellers. Some highlights from this year’s publication:
- Demographics of home buyers is the biggest change from 2010. The median age of buyers jumped to 45 years old from 39 years old.
- Only 10% of recent sellers sold via FSBO. 87% of recent sellers sold through a real estate agent or broker.
- The top reason among sellers to sell their home was a job relocation, at 17% of all sellers, up from 9% in 2006.
- The typical home seller lived in their home for 9 years – a number that has consistently increased in recent years.
- About 9 in 10 recent home buyers purchased their home through a real estate agent or broker.
- Over one-third of home buyers look online at properties for sale as their first step in the home buying process.
- The 2011 report saw the highest share of married couple home buyers since 2001, and the lowest share of single females since 2004.
- The income of home buyers rose with tighter underwriting. The median income of buyers in 2011 was $80,900. This is up from $72,200 in 2010.
For more information on the Profile, click here. To read the press release, click here.
- The share of buyers making a downpayment of 20% or more accounted for one third of all transactions in Region 1 (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut) during the 3rd quarter.
- Downpayment requirements have been elevated for some time, but the new, lower conforming loan limits resulted in higher downpayment requirements in many parts of the high priced Northeast.
- While the limits changed on October 1st, banks and mortgage brokers were putting the new requirements in place in advance of the statutory change anticipating long pipelines of mortgages waiting for closings.
To find the full surveys for each region, click here >
Recent refinancing activity shows that the new mortgage rate is about 80 percent of the old rate. That is, for example, someone tapping into a 4.0 percent mortgage rate from a previous rate of 5.0. Though the paperwork demands for refinancing have become excessively cumbersome, the money saved is worth it and people are putting up with all of the questions on their finances in order to save.
Unfortunately, not everyone who could benefit meaningfully has been able to refinance. Mainly this means those homeowners who happen to live in markets where prices came down hard and thereby put their mortgage amount above the appraisal value of their home. Some relaxation on rules, including lower fees, for refinancing is being discussed by policymakers. NAR has been pushing for the passage of the Boxer-Isakson bill, which would permit easier refinancing for those underwater homeowners who have been current on their payments. The basic idea is simple in that if someone could pay a $1,000 mortgage then surely the same person can pay $850. These would greatly reduce incentives for homeowners to default and furthermore is fair, given the very wide interest rate spread currently existing between bank deposits and bank loans.
A home buyer purchasing a typical American homeat the prevailing average mortgage rate today would have a mortgage payment of $698 a month. This figure is not much different from what a home buyer would have faced 30 years ago. In 1981, home prices were much lower but mortgage rates were reaching 18 percent. Today, home prices have come down by about 33 percent on average from the bubble years, but prices still remain comfortably higher than those of the 1980s. However, thanks to record low mortgage rates, the monthly payment obligations have been greatly reduced.
- Home buyers are asked the source of the downpayment for their recent home purchase in the Profile of Home Buyers and Sellers. The most common source for downpayments has consistently been savings for the last five years, however this has risen in prominence recently. In 2010, 66 percent of recent home buyers used savings for the downpayment on their home purchase, up from 50 percent of buyers in 2005.
- Proceeds from the sale of a primary residence has decreased as a downpayment source, not only among all buyers (43 percent in 2005 to 22 percent in 2010), but also among repeat buyers (66 percent in 2005 to 43 percent in 2010).
- Receiving a gift from a friend or relative has increased among all buyers as a source of downpayments, from a low of 9 percent in 2006 to a high of 18 percent in 2010. This source is most common among first-time buyers—27 percent of first-time home buyers used this in 2010.
- Loans from financial institutions other than for a mortgage were more common in 2005 with 6 percent of buyers using them, compared to just 1 percent in 2010.
- Click here for more information about the Profile of Home Buyers and Sellers.
Latest Realtors® Confidence Index News: The Major Issues
Each month Realtors® provide data and comments in responding to the Realtors® Confidence Index Survey. The November edition, with data current as of late October, summarizes a number of major issues mentioned by Realtors®, mainly focused on mortgage availability and lending standards, appraisals, and foreclosures. Of particular interest was the Realtor® experience in the closing process: 47 percent of Realtors® reported on-time settlements, down from the 65 to 70 percent range reported in previous months.
Problems with obtaining mortgages along with appraisal and inspection problems were mentioned as causes of settlement delays and cancellations.
General Market Trends
For the past three years the residential markets have been fluctuating – modest increases and decreases around the current level of sales. After declining from its peak, price has fluctuated substantially from month to month, but over the three year period has been relatively flat as reported by NAR and Case-Shiller. We essentially have a residential market that is moving sideways, influenced heavily by the approximate 33 percent of transactions that are distressed sales.
The major impediment to increased sales appears to be the overall jobs picture. The economy needs to add approximately 125,000 jobs on a monthly basis in order to stay even – and we need substantially more job additions every month in order to decrease unemployment. Right now the economy is experiencing very modest growth with job creation frequently below the 125,000 figure. It appears that the combination of financial problems (both domestic and worldwide) coupled with lowered consumer demand has decreased job creation. Most economists currently see the jobs problem as lasting in the neighborhood of four years.
Current price trends are probably based on a combination of market weaknesses and emotional concerns. At this time overall affordability is near an all-time high in terms of interest rates, price/income relationships, and percentage of income required to support a mortgage. In many cases home prices are reported as below reproduction costs. Current market prices appear to be a function of the weak employment picture and a tendency of markets to overshoot on the way up and undershoot on the way down.
Realtors’® responses in the past few months have basically indicated a sideways moving market. If economic conditions continue to deliver their forecasted modest improvement, then the market recovery will be slow. All real estate is local, so overall market performance will be uneven.
What Does This Mean To Realtors®?
Clients may be concerned about all the negative publicity regarding the housing markets: Interest rates and prices are very reasonable compared to history. NAR surveys indicate that the average homebuyer will stay in their home for seven to nine years, so weekly price fluctuations really are irrelevant. In addition, homeownership needs to be a focus on lifestyle and how one wants one’s family to live. Negative or sensational publicity sells newspapers. “Dog Bites Man” is on page 32 of a 28 page paper; “Man Bites Dog” is front page above the fold. It’s important not to get carried away by irrelevant or sensational headlines. Realtors® sell houses for families and individuals. Prudence in determining the amount to pay is important. However, over the longer run the likelihood of a home purchase proving to be a reasonable expenditure has tended to be higher rather than lower.
Obtaining a Mortgage Is Difficult: Financial institutions have tightened (many would say unreasonably tightened) their lending standards. Credit-worthy buyers are reported as frequently being rejected for loans. Loan rejections may be more related to the overly risky portfolio of loans that a bank has rather than the credit worthiness of the purchaser. Home buyers need to look to regional and community banks, and credit unions when appropriate.
The Market is Better than the News: NAR and Case-Shiller data show that home prices have fluctuated in a band or range for the past few years. Prices have definitely been a concern, but should recover as the job situation improves. The real estate markets tend to move with the economy; right now the economy is slow. However, most economists continue to project ongoing economic growth. In a growing economy real estate has usually done well. Most buyers hold their properties on average for approximately eight years or more, and economists are projecting substantial growth over that time frame. These are the reasons why we say now is a good time to buy. The stock market goes through periods when valuations are low—a buyer’s market. We seem to be in a similar type of market for housing.